Baker Corporation applies overhead based upon machine-hours. Budgeted factory ov

Question

Baker Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory overhead was $287,920 and actual machine-hours were 19,050. Before disposition of over- or underapplied overhead, the cost of goods sold was $560,000 and ending inventories were as follows:

Direct Materials 60000

WIP 190000

Finished Goods 250000

Total 500000
    
Required:
a. Compute the amount of overhead applied to production.
b. Prepare the journal entry to dispose of the over/under-applied overhead using the write-off to cost of goods sold approach.
c. Prepare the journal entry to dispose of the over/under-applied overhead using the proration approach.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Predetermined Overhead Rate = 266400/18500 = 14.4 per machine hours

Overhead Applied = 19050*14.4 = 274320

Underapplication of overhead = 287920 - 274320 = 13600

Answer is 13600 (Underapplied).

Part B:

Cost of Goods Sold Dr. 13600

Underapplied Manufacturing Overhead Cr. 13600

Part C:

Raw Material Dr. 769.91
Work In Porgress Dr. 2437.74
Finished Goods Dr. 3207.55
Cost of Goods Sold Dr. 7184.91
Under Applied Manufacturing Overhead Cr. 13600

Thanks.

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